There will be a cash bank run at some point and the government will issue a bank holiday. Do not be caught without cash.

Cash will make the world go round during a bank holiday.

Just as the dollar is a fiat currency, the money held in the accounts and loaned out at our banks is created out of thin air.

In order to understand how to protect your wealth, you must understand how the fiat currency and fractional (I mean, no-reserve) banking systems work.

It is in the government’s best interest for you NOT to understand this system. It is also in the government’s best interest for you NOT to understand that this sytem can completely implode. And it HAS DONE SO several times during the past 250 years in America.

The summary: the housing market is not recovering, it is continuing in its downward slope.

The 5% increase in February. In the past five years February has always been higher than January.

73% of the homes “sold” in February were depressed properties, sold at auction, foreclosure process or bankruptcy.

Side note: housing prices are down 15% nationwide from last year. Some areas have seen more of a decrease than others. In my opinion, expect to see a nationwide decline of 30% at the bottom of this cycle.

March 23, 2009

Making up for lost Friday afternoons, the FDIC took over three more banks.

Check out the bank implode website on my blog roll.

The more concerning event last Friday was the take over of two of the regional credit unions.

The Credit Unions seem to be in real trouble here and the press isn’t writing about.

Make sure you have protected your investments.

The Fed is printing trillions left and right just when they are saying the market is stable. What do they know that they aren’t telling us? This newest printing and buying of toxic debt is a proactive measure, not a reactive measure. Proactive against what?

The Fed doesn’t want the secret to be let out. The entire global financial system is collapsing, and they are not able to do anything about it.

I was listening to NPR morning report last Friday and the guy was explaining what “a toxic debt” was. He had the 100+ page paperwork of a derivatives contract based on 5000 mortgages.

He said they aren’t that scary, and if you hold onto them through this last bump, they will pay out.

Hogwash.

Take a look at this chart, the high volume of the worst toxic mortgages (option arm) has not rolled over yet.

AIG is clearing these mortgage-backed securities right now for big banks and hedge funds. The large investors are taking taxpayer money to get full value now, because they know what it coming.

Remember the video of the Tsunami on December 26th. The first wave came out of nowhere, thousands drowned. When 30 minutes later when people were coming out of hiding and down from trees, the second wave hit, drowning twice as many people.

Looking at the chart above, 2010-2011 will be the second wave of toxic debt to wreck havoc on the market. AIG will be out of business by then. They are paying off their best customers with taxpayer money and closing shop before the next phase.

Today the Financial Accounting Standards Board proved they are completely without sense. The rules have changed again, beware investors (if there are any of you left). Companies can now pick a number, any number, that they think their assets are worth (toxic debt included) and put it on their balance sheet.

A snippet from Jonathan’s article:

This week, the Financial Accounting Standards Board unveiled what may be the dumbest, most bankrupt proposal in its 36-year history. If it stands, the FASB ought to change its name to the Fraudulent Accounting Standards Board. It’s that bad.

Here’s what the board is floating. Starting this quarter, U.S. companies would be allowed to report net-income figures that ignore severe, long-term price declines in securities they own. Not just debt securities, mind you, but even common stocks and other equities, too.

The Fed is buying $300 Billion in US Treasury Bonds. This is the buying spree they actually announced. The Fed has been buying up the excess bonds that no one wants to buy through “offshore banks” in the Caribbean.

The Fed is trying to fight deflation in debt (used for growth) not deflation in prices. Because of the large amounts of debt upon debt that are now imploding, there is no growth. The US has been using debt to expand in the United States, not true growth, by capital investment and production.

Now as debt is deflating, everyone can see the emperor has no clothes. The US growth is on paper only.

But prices are not deflating, only gas. Although inflation has slowed, shadowstats.com states that using real numbers prices have doubled since 2002.

Have you received a raise this year to match this inflation? Have your investments given you a return equal to this inflation? No, we have lost 50% of our investments, we have lost jobs.

CPI-U Feb. 2009

Notice the red?

Hopefully, your salary and investments have doubled since 2002, as prices have doubled since then. In my mind, to break even, all prices need to go down 50%.

The Fed is scared of deflation in debt and they will therefore print as much money as necessary to guarantee inflation in prices.

The FDIC is apparently upset at East Bridegwater Savings Bank because it doesn’t have enough toxic debt on its balance sheet. Chief executive Joseph Petrucelli said, “We’re paranoid about credit quality.”

I really wish the rest of the financial system was paranoid.

The FDIC sited the bank with a “needs to improve” rating. Personally I think we should all flock to East Bridgewater with cash in hand for deposit.

From the article:

The problem, according to FDIC data, was that from late 2003 through mid-2008, East Bridgewater Savings made an average of 28 cents in loans for every dollar in deposit — a sharp contrast to the 90 percent average loan-to-deposit ratio among similar banks, the paper (Boston Business Journal) reported.

Fractional banking at 90% ratio is not a law, it is just the limit the government sets for banks at a given moment. Thank goodness one bank had the good sense and education of the financial markets not to take the government’s suggestion on how to run its business.

So ironic that good banking is being spanked and bad banking is being bailed out. Twilight Zone.

March 17, 2009

I really like how he covered all the possible ways to approach and prepare for an emergency. Everything from urban warfare to backwoods retreats to second passports. And of course, he went through the process himself. So with Neil’s flash, it is an entertaining way to take in the most dull information. It will save your life.

If you haven’t taken in the book, please do. You may know Neil from his other books, like The Game and How to Make Love Like a Porn Star.

Although this is written for the urban male, no reason why a woman can’t learn to kill and skin a goat, get out of hand cuffs while locked in a trunk, and shoot a gun. Probably more important skills for women to learn anyway. (OK, maybe not the goat part.)

If you really want to learn how to survive, you will need to do more research, but this is an excellent introduction to surviving emergancies and contacting the right people to learn more.

This means that there is a disconnect between the price of paper silver vs. physical silver. It means that investors do not believe that they will be able to get actual physical silver if they traded in their paper. Silver has been in backwardation since January 21st. This is very uncommon.

It points to a few things in the future:

Physical metals on paper will be worth much less than the physical coins, so buy the physical metal. If you wish to own some paper, that’s fine, just don’t make it all your precious metals holdings. Understand the risk here. (James Turk suggests not holding any paper, all coins and bars.)

Physical metals will be impossible to buy once this disconnect is truely understood by the average investor.

Large investors already understand this and are buying the real stuff now.

I am not big on short term investing (under a year). It’s not my forte.

However, people are wondering….I am losing money left and right in this bear market, what can I do until precious metals take off again.

Contrary to popular opinion, you can make money in a bear market. In fact it’s usually the time when the most money changes hands the fastest. Since they don’t teach financial bull market education in school, they certainly don’t teach bear market education. And most all 401K plans want you to buy mutual funds and hold.

If you are investing in any way in your future, it is important to understand business cycles (bear and bull). How to invest in each one. How to get out before the next cycle hits.

We are in a world wide bear market and there is no bottom in sight yet. Contrary to what Mr. Obama has said, there will be no recovery in the second half of 2009.

Here are a few things to research and decide if you would like to invest a small portion of your net worth. These are short term (3-6 months). The long term fundamentals still point to hyperinflation, currency collapses, and safe haven in gold and silver:

1. Western Europe does not look good at all. European banks have alot of loans to Eastern European banks. If one or many of these countries politically implode or their currency implodes, all of Europe will be in serious trouble. There are analysts that think this is unavoidable and we are only waiting for the first spark.

With this in mind, look for EAFE Index Inverse ETFs. These are exchange traded funds that run counter to the economic environment in Europe. Most of these ETFs can be purchased through your 401K or IRA, as well as a regular brokerage account. If European stocks fall 30%, your investment would rise 30%. Look to get out at the right time or your gains will be nixed. The first thing you should know before you make an investment (in any thing) is when you will get out of that investment.

2. If Europe does encounter a huge set back, the euro will fall. This will make the US Dollar rise, as it is heavily weighted in euro. So, an index fund that rises with the US Dollar would be another option. Some analysts are looking for a 15-17% rise in the dollar before a high and drop. Simply due to the fall in the euro, not a change in the fundamentals of the US Dollar. And don’t worry too much about your gold investments. In 2008, gold was trading against the USdollar, today it is clear that gold and silver are trading as if they were a currency on their own. Which they are!

3. Most are looking for a short term rally in the DOW, but a bottom of at least 5000. Could be much more. This crisis is world wide and there could be a huge over correction on downside in the markets. It’s any body’s guess how low. I personally do not recommend investing in the DOW up or down (in the short term), it’s too risky unless you are watching the ticker on daily basis. Maybe they will reinstate that uptick rule soon.

4. Gold and silver coins are still great to purchase (and hold) on dips. Right now I am staying out of or have very limited exposure to paper gold, such as a gold ETF. Coins are best, allocted funds are OK, and ETFs are a last resort.

5. The US government will have to sell a huge amount of treasury bonds to finance the alphabet soup of bailouts and stimulus. I believe in the second half of 2009 treasuries will begin falling. Prepare to purchase inverse index funds that bet against US treasury bonds. Treasury bonds will probably hit a high and bob up and down within a slide downward. This bob will be the result of real buyers moving out and the US government printing more and more money to buy their own bonds. This practice will ensure hyperinflation in the coming years.

A slight warning: the risk for brokerage houses to implode is just as high as banks to implode, perhaps higher. Depending on what percentage of your net worth you are planning on using to invest in a bear market, I would suggest two things. Invest a small portion, so if you lose it all through the brokerage house, you will not be wiped out. Invest in two or three different brokerage houses to spread out that risk. The brokerage house has your trading account money in their bank account, it is just assigned to you. It is a very different set up than a bank account with FDIC insurance. When you take profits that you are not planning on reinvesting, move that money into your regular bank account as soon as possible.

By the way, your company 401K is set up this same way, in the brokerage house account, assigned to your name. However, if 401Ks start disappearing, there will be rioting in the streets. They should be fairly safe for now. And you can’t move money out of them without a huge tax penalty.

That’s all I have for now. We will see how these things pan out in the next three to six months.

According to Martin Armstrong we are on a slight upside (until April 2009) of a continued downward slide (until June 2011) in the economic confidence model. This is the long term outlook I follow, which is different from what I presented here, a short term model.